Subsea Europe: Future of UK production in smaller fields

If the UK wants to sustain a reasonable level of self-sufficiency in oil and gas, it will have to do so by bringing on stream a conveyor belt of smaller fields, according to industry association Oil & Gas UK.

Offshore staff

LONDON -- If the UK wants to sustain a reasonable level of self-sufficiency in oil and gas, it will have to do so by bringing on stream a conveyor belt of smaller fields, according to industry association Oil & Gas UK.

Chief executive Malcolm Webb, speaking last week at the Subsea Europe conference in London, said discoveries on the UK shelf now average around 15 MMboe, and the typical size of new UK field development projects is around 25 MMboe.

However, the industry was having to contend with a range of issues, Webb explained, notably “very significant cost inflation. A lot of this is to do with smaller units, the declining UKCS production curve, but also global phenomena, i.e. the increased costs of materials and of people”.

Webb said the UK shelf had produced 40 Bboe to date, with around 15-25 Bboe remaining to be recovered. “There is still huge potential in the Northern North Sea, even bigger in the Central North Sea.

“However, we must be smart in using the infrastructure in place, which was put in on the back of the mega-fields found in the early days of North Sea E&P. If we don’t use that infrastructure, it will be taken away, as these [new generation of] small fields do not justify their own infrastructure.”

Webb said investment was being further constrained by the “unfortunate” circumstances for decommissioning on the UK shelf. The industry had built up a £15 billion ($22.5 billion) decommissioning liability, yet the government was refusing to introduce fiscal provisions that would allow some of these funds to be released for capital investment.

“It means that the government will end up having to pay its share of the ultimate decommissioning costs,” he added. Webb also expressed concern over “cumbersome” commercial arrangements on the UKCS: “it takes too long to get new fields into the system.”

Despite the poor state of the UK’s finances, Webb did not anticipate the government increasing petroleum taxes in the upcoming budget announcement, but neither did he expect taxes to be cut. “The industry here accepts that the government is in between a rock and a hard place.

“What we would like to see is incentives for incremental production via a value allowance.” Webb said Oil & Gas UK was lobbying the government for further assistance to develop high pressure, high temperature fields. “We also want to engage them on the issue of tight gas and activity west of Shetland.”

11/30/2009

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